October 26, 2011

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges

After surrendering to federal authorities today, Rajat Gupta has entered a not guilty plea to the criminal charges against him involving insider trading. Gupta, who was a former Proctor and Gamble and Goldman Sachs director, is accused of multiple counts of securities fraud and one count of conspiracy to commit securities fraud. He allegedly gave Galleon Group cofounder Raj Rajaratnam corporate secrets about Goldman. Our stockbroker fraud law firm has been following Rajaratnam’s criminal case on our blog site. (See below.) Earlier this month, he was sentenced to 11 years in prison over an insider trading scam that illegally garnered $63.8 million.

Gupta, who also once was a global head at McKinsey & Co., came under close scrutiny during Rajaratnam’s trial when he was brought up in testimony and phone conversations that were recorded in secret. He is also now facing civil charges with the Securities and Exchange Commission, which contends that he provided Rajaratnam with illegal tips about both Proctor and Gamble and Goldman Sachs’ quarterly earnings and an approximately $5 billion investment that Berkshire Hathaway was planning to make in the financial firm. Based on Gupta’s tips, Rajaratnam avoided losses of/made illegal profits of over $23 million. Rajaratnam made over 800,000 in illegal profits from the Berkshire Hathaway tip when, after first having Galleon funds buy over 215,000 Goldman shares, he ordered the liquidation of the Goldman holdings a day after the information and Goldman’s public equity offering became public.

Rajaratnam also made over $18.5 million in illegal profits for Galleon funds after Gupta allegedly told him that Goldman had positive 2008 second quarter financial results. Rajaratnam then had the hedge fund buy Goldman securities but liquidated them when Goldman made news of its earnings for that quarter public. Other charges stem from Gupta allegedly notifying Rajaratnam that fourth quarter results for that same year were negative. The Goldman holdings were sold off, allowing Rajaratnam to avoid over $3 million in losses. When Gupta allegedly tipped him about P & G's 2008 4th quarter earnings, Rajaratnam had Galleon funds sell short about 180,000 P & G shares, generating over $570,000 in illicit profits.

According to the SEC, Gupta got his confidential information from board conversations while serving as director at both companies. At the time, Gupta had numerous business ties with Rajaratnam and was seeking to strengthen that relationship. Not only had Gupta invested in Rajaratnam’s hedge funds, but they also began a number of financial ventures together.

The SEC had recently dropped its previous administrative action against Gupta over the insider trading allegations. Following that move, he vowed to drop his lawsuit claiming that the regulatory proceeding had violated his constitutional rights.

Of the 56 people that the government has charged with its crackdown on insider trading, 51 either were convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., Dealbook, October 26, 2011

SEC Files Insider Trading Charges against Rajat Gupta, SEC, October 26, 2011

Rajat Gupta, SEC Agree to Drop Galleon-Related Suit, Administrative Action, Bloomberg, August 5, 2011


More Blog Posts:
Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011

Continue reading "Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges" »

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Posted In: Financial Firms , Goldman Sachs , Insider Trading

May 5, 2011

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011

False Claims Act, Cornell University Law School


Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011

Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011

Continue reading "Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008" »

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Posted In: Deutsche Bank , Financial Firms , Goldman Sachs , Texas Securities Fraud , Whistleblower Lawsuits

November 12, 2010

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation

The Financial Industry Regulatory Authority says it is fining Goldman Sachs $650,000 for failing to disclose that the government was investigating two of its brokers. One of the brokers was Goldman vice president Fabrice Tourre. FINRA says Goldman did not have the proper procedures in place to make sure that this disclosure was made.

The SEC had accused Tourre of being “principally responsible” for Abacus 2007-AC1, a synthetic collateralized debt obligation, and selling the bonds to investors, who ended up losing more than $1 billion while Goldman yielded profits and hedge fund manager John A. Paulson made money from bets he placed against specific mortgage bonds. The SEC contends that Goldman failed to notify investors that Paulson had taken a short position against Abacus 2007-AC1. This summer, Goldman settled for $550 million SEC charges that it misled investors about this CDO, just as the housing market was collapsing.

Regarding Goldman’s failure to disclose that the SEC was investigating two of its brokers, even though investment firms are required to file a Form U4 within 30 days of finding out that a representative has received a Wells notice about the probe, FINRA says that Tourre’s U4 wasn’t amended until May 3, 2010. This date is more than 7 months after Goldman learned about his Well Notice and after the SEC filed its complaint against the investment bank and Tourre. FINRA also says that Goldman’s “employee manual” for brokers does not even specifically mention Wells Notices or the need for disclosure after one is received.

By agreeing to settle with FINRA, Goldman is not admitting to or denying the charges.

Goldman Sachs to Pay $650,000 for Failing to Disclose Wells Notices, FINRA, November 9, 2010

Related Web Resources:
Goldman Fined $650,000 for Lack of Disclosure, New York Times, November 9, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million,
Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs, Institutional Investor Securities Blog

Continue reading "Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation" »

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Posted In: Collateral Debt Obligation , FINRA , Financial Firms , Goldman Sachs , Goldman Sachs

September 11, 2010

Goldman Sachs Permanently Exempted from Company Act Disqualification Provision, Says SEC

The Securities and Exchange Commission has decided to permanently exempt Goldman & Sachs Co. from a 1940 Investment Company Act provision that would have disqualified the financial firm from serving as a principal underwrite. Goldman and several of its affiliates applied for exemption from ICA Section 9(a) after settling for $550 million SEC securities fraud charges that it made material misrepresentations related to the 2007 structuring and sale of derivative product connected to subprime mortgages.

Under the provision, a person cannot act as a principal underwriter or investment adviser for an investment firm if, due to misconduct, the party in question is enjoined from taking part in any practice or conduct related to the purchase or sale of any security. Goldman, in its application, noted that since the district court had barred it and its affiliates from violating federal securities laws moving forward, the provision would apply to disqualify them from giving advisory services to investment companies.

After granting the broker-dealer a temporary exemption in July, the SEC issued Goldman a permanent one. The SEC noted that the applicants’ behavior did not make it against the “public interest or protection of investors” to grant the permanent exemption.

Regarding the $550 million securities fraud settlement, which is the largest penalty that the SEC has ordered a financial firm to pay, Goldman was accused of misleading investors about a synthetic collateralized debt obligation as the housing market was collapsing. Investors suffered more than $1 billion in financial losses. The brokerage firm admitted that it provided incomplete marketing information for the product and has agreed to reform its business practices.

Related Web Resources:
Investment Company Act of 1940

Goldman Sachs, SEC Reach $550 Million Settlement, PBS News, July 15, 2010


Continue reading "Goldman Sachs Permanently Exempted from Company Act Disqualification Provision, Says SEC" »

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Posted In: Collateral Debt Obligation , Financial Firms , Goldman Sachs , Securities Fraud , Subprime Mortgage

July 30, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million

Goldman, Sachs & Co. has agreed to reform its business practices and pay $550M to settle Securities and Exchange Commission charges that it misled investors about a synthetic collateralized debt obligation (CDO) just as the housing market was failing. By agreeing to settle the securities fraud lawsuit, Goldman is admitting that information in the marketing materials for the product was incomplete.

The SEC case involves Abacus 2007-AC1, one of 25 investment vehicles that Goldman created so that certain clients could bet against the housing market. Unfortunately, when the market did fail, investors lost over $1 billion. Meantime, the investment bank yielded profits and John A. Paulson, the hedge fund manager that the SEC says asked Goldman to create the 2007-AC1, made money from bets he made against certain mortgage bonds.

While investors were told that an independent manager was choosing the bonds, the SEC contends that Goldman allowed Paulson to choose mortgage bonds that he thought were likely to drop in value. However, clients were not notified about Paulson & Co. Inc.’s part in the portfolio selection process or that Paulson had taken a short position against the CDO. The investment bank then sold the package to investors that would only turn a profit if the value of the bonds went up.

The $550 million penalty against Goldman is the largest that the SEC has ordered a financial services company. By agreeing to settle, Goldman is not denying or admitting to the allegations. $300 million of the fine will go to the U.S. Treasury, while $250 million will be repaid to investors that suffered losses.

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, US Securities and Exchange Commission, July 15, 2010

Goldman Settles With S.E.C. for $550 Million, NY TImes, July 15, 2010

Read the SEC Complaint against Goldman Sachs (PDF)

Continue reading "Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million" »

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Posted In: Financial Firms , Goldman Sachs

July 14, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients

According to Goldman Sachs Group Inc. Chief Operating Operator and President Gary Cohn, the investment firm adamant that the bank did not bet against its own clients. He says that Goldman Sachs purchased protection against a decline in just 1% of mortgage-backed securities it underwrote since late 2006. Former clients, regulators, and members of Congress are accusing Goldman Sachs of designing mortgage-backed securities that would fail and then betting on their failure to purchase credit-default swaps, which pay out when a default occurs.

Cohn testified last month before the Financial Crisis Inquiry Commission. He says that in the wake of the serious allegations, the investment firm has examined the $47 billion in residential mortgage-backed securities (RMBS) and $14.5 billion in collateralized debt obligations (CDOs) that the firm underwrote since firm executives began to feel the need to treat the subprime mortgage market with caution in December 2006. He claims that by the end of June 2007, Goldman Sachs held $2.4 billion of bonds from CDOs and $2.4 billion of bonds from RMBS trusts. The investment bank had protection for approximately 1% of the total underwritten. Nearly 60% of the derivatives and bonds in the CDOs were from other institutions.

The hearing was called to probe the relationship between Goldman and American International Group Inc (AIG). The investment bank had purchased CDO protection from the insurer. Billions of dollars in federal funds had allowed AIG to stay in business even though it was facing bankruptcy and a number of the insurer’s counterparties, including Goldman, are believed to have benefited. Cohn has argued that all market participants benefited from the government’s assistance.

Related Web Resources:
Goldman Sachs Shorted 1% of its Mortgage Bonds, CDOs, Cohn Says, Business Week, June 30, 2010

Goldman's Cohn: Firm Didn't Drive Down Mortgage-Asset Marks, Bloomberg.com, June 30, 2010

Financial Crisis Inquiry Commission

Continue reading "Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients" »

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Posted In: Collateral Debt Obligation , Credit Default Swaps (CDS) , Financial Firms , Goldman Sachs , Mortgage Backed Securities

June 26, 2010

Texas Attorney General Candidate Barbara Ann Radnofsky Says State Should File Securities Fraud Lawsuit Against Wall Street Firms

Barbara Ann Radnofsky, the Democratic candidate for Texas attorney general, says that the state should sue Wall Street firms for securities fraud. Earlier this week, she published a legal brief accusing investment banks of being responsible for the financial crisis. Her Texas securities fraud briefing, which is modeled on the multibillion-dollar tobacco settlements from the 1990’s, is seeking approximately $18 billion in securities fraud damages and other reparations for Texas. She targets Morgan Stanley, Goldman Sachs Group, AIG insurance, and other leading financial firms, banks, and bond-rating agencies.

Radnofsky’s brief is not a securities fraud lawsuit, but it is a framework for one. She hopes that it will push incumbent Texas Attorney General Greg Abbott to take action. She contends that if Abbott fails to sue the firms by September, “he is committing legal malpractice.” She is accusing him of failing to act despite the “clear evidence.”

Radnofsky has noted that the financial meltdown has forced Texas to make cuts to social programs, environmental enforcement, and child protective services. She says the “Great Recession” has lead to child illness, hunger, death, and abuse. She also contends that foreclosures and abandoned homes have severely affected neighborhoods.

Radnofsky launched Suewallstreet.com earlier this week. The Web site includes a petition pushing for Texas and other US states to file a securities fraud complaint against numerous financial firms. The aim is to garner 100,000 signatures. Randofsky, who is an attorney, offered to handle the securities fraud lawsuit at no cost to taxpayers. Soon after Radnofsky launched her appeal, Attorney General Abbott’s office revealed that Texas, other states, and the US Department of Justice are conducting a broad investigation into the Wall Street firms that may have played a key role in the economic crisis.

Shepherd Smith Edwards & Kantas LTD LLP founder and Stockbroker Fraud Attorney William Shepherd is applauding Radnofsky’s move. ““I have no doubts that Wall Street’s actions, including intentional and grossly negligent acts, have caused severe harm worldwide. States such as Texas could be in a unique position to seek relief based on the history of similar suits. States and municipalities have been big losers as a result of financial woes caused by Wall Street and I congratulate Ms. Radnofsky for her efforts.”

Related Web Resources:
Radnofsky Urges legal action against Wall Street, Dallas News, June 26, 2010

Barbara Ann Radnofsky

Read the Brief

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Posted In: Financial Advisers , Goldman Sachs , Morgan Stanley , Texas Securities Fraud

May 5, 2010

Goldman Sachs Fined $450,000 by NYSE Regulation for Short Sale Rule Violations. Are they being persecuted?

It was announced by Reuters News today that regulators at the New York Stock Exchange have fined Goldman Sachs Execution & Clearing Corp. $450,000 in connection with roughly 385 orders to "short" equity securities for clients that resulted in "fail-to-deliver" positions without first borrowing or arranging to borrow the securities as collateral. The nearly 400 infractions occurred in a seven week period in December 2008 – January 2009.

So that timely delivery of the shares sold can be made to buyers, a rule has existed for decades that says investors cannot sell securities short unless arrangements have been made to borrow such securities. Stock shares can be made available to lend by anyone who owns those shares. For example, when margin agreements are signed at a brokerage firms by investors, the agreement contains language which allows their securities to be rented to those seeking to sell the shares short, (The rent charged is almost always kept by the firm.) This can happen at the same brokerage firm or arrangements can be made by one firm to lend available securities to another firm to transact short sales for itself or its clients.

There are have been many examples of "short squeezes", some undoubtedly intentional, in which shares are either not available to meet borrowing demand, or shares previously lent are reclaimed. This caused short sellers to have to scramble to find shares or be "bought in" on the open market. In some situations in the past, the law of supply and demand for shares has caused the price of the stock to rise to two or three times its pre-squeeze price, wiping out the short sellers. Thus, rampant short selling had its own unique deterrent.

It is up to the brokerage community to police the borrowing rule. Through computers, availability of shares can be very easily learned before a short sale is executed. In the "heydays" of day trading firms during the 1990's, day traders would seek to "block up" shares in advance of a short sale to avoid the delay of locating shares when the desired price was reached. (There were some tricks used to try to accomplish this while not telegraphing to professional traders and specialists that short sales were eminent, but we will not attempt a full explanation of these at this time.)

As part of the deregulation which occurred prior to the market crash of 2008-2009, while short sale regulations remained in place, the hard rule of making certain that shares are available at the time the short sale is executed was modified to allow firms to simply act in "good faith" to attempt to locate the shares. As wild flections were occurring in the stock markets during the crash, professional traders often reaped huge profits on short sales. The “good faith” crack in the door for those selling short grew to an open door policy of simply not enforcing this and other short sale rules. While the term "naked shorts" became a part of the culture, this was nevertheless simply deregulation by non-enforcement of the borrowing rule.

There has been no information revealed as to whether the Goldman’s admission of some 400 borrowing rule violations over a 7 week period is indicative of thousands of such violations by Wall Street during the years regulators were looking the other way. However I - for one - would not be shocked to learn that this is a mere "drop in the bucket" of the total borrowing violations which actually occurred. If Goldman claims it is being singled-out on this one, that is likely the truth. However, I quickly learned as a teenager that the defense of "everyone else is doing it" was not going to work with my regulators.

Continue reading "Goldman Sachs Fined $450,000 by NYSE Regulation for Short Sale Rule Violations. Are they being persecuted? " »

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Posted In: Goldman Sachs , Margin Accounts , NYSER

April 30, 2010

$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded

Although the Senate hearing over Goldman, Sachs, & Co.’s role in structuring a collateralized loan obligation that caused investors to lose about $1 billion in losses has ended, the case against the investment bank is far from over. The SEC’s securities fraud lawsuit filed earlier this month makes numerous disturbing allegations against Goldman Sachs, and now lawmakers are calling on the Justice Department to begin a criminal probe into the CDO transaction that is a focus of the SEC case.

The SEC says Goldman Sachs and one of its vice presidents defrauded investors by structuring and marketing a synthetic collateralized debt obligation that was dependent on the performance of subprime residential mortgage-backed securities (RMBS), while at the same time failing to tell investors about certain key information, such as the role that a major hedge fund played in portfolio selection or that the hedge fund had taken a short position against the CDO.

The hedge fund, Paulson & Co, is one of the largest in the world. The SEC says that Paulson & Co. paid Goldman to allow it to set up a transaction that let it take these short positions. The SEC contends that Goldman acted wrongfully when it let a client that was betting against the mortgage market heavily influence which securities should be part of an investment portfolio, while at the same time telling other investors that ACA Management LLCS (ACA), an objective, independent third party was choosing the securities. Investors therefore did not know about Paulson & Co’s role in choosing the RMBS or that the hedge fund would benefit if the RMBS defaulted.

SEC alleges that Paulson & Co. shorted the RMBS portfolio it helped choose by taking part in credit default swaps (CDS) with Goldman Sachs to purchase protection on specific layers of the ABACUS capital structure. Because of its financial short interest, Paulson & Co had reason to choose RMBS that it thought would undergo credit events in the near future. In the term sheet offering memorandum, flip book, or marketing materials that it gave investors, Goldman did not reveal Paulson & Co’s short position or the part it played the hedge fund played in the collateral selection process.

The SEC is also accusing Goldman Sachs Vice President Fabrice Tourre of being principally responsible for ABACUS. He structured the transaction, prepared the marketing materials, and dealt directly with investors. The SEC claims that Tourre knew about Paulson & Co’s role and misled ACA into thinking that the hedge fund invested about $200 million in the equity of ABACUS, while indicating that Paulson & Co’s interests in the collateralized selection process were closely in line with ACA’s interests.

Six months after the deal closed on April 26, 2007 and Paulson & Co had paid Goldman Sachs about $15 million for structuring and marketing Abacus, 83% of the RMBS in the ABACUS portfolio was downgraded and 17% was on negative watch. By Jan 29, 2008, 99% of the portfolio had been downgraded.

“Synthetic derivative investments are so highly complex that even highly sophisticated investors can be defrauded,” says Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney William Shepherd. “ Any other investor being sold these is simply "fair game" for Wall Street. Our securities fraud law firm represents five school districts that lost over $200 million in what they were told were very low risk investments into bonds. Not only were these not "bonds" but the risk to them was enormous.”

Goldman CEO says has board's support: report, Reuters, April 27, 2010

Blankfein Says He Was 'Humbled' By Senate Hearing, NPR, April 29, 2010

What’s Next for Goldman Sachs?, New York Times, April 29, 2010

SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages, SEC.gov, April 16, 2010

Read the SEC Complaint (PDF)

Continue reading "$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded " »

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Posted In: Financial Firms , Goldman Sachs , SEC Enforcement , Securities Fraud

December 31, 2009

Goldman Sachs Executives Sued by Pension Fund Over Bonuses

A shareholder derivative complaint filed by Security Police and Fire Professionals of America Retirement Fund and Judith A. Miller Living Trust is accusing Goldman Sachs Group Inc. executives of breaching their fiduciary duties for failing to modify the investment firm’s compensation policies according to the best interests of shareholders.

Goldman’s usual policy is to place 44-48% of its net revenue in employee compensation, which includes bonuses. The plaintiffs say these breaches were even greater this year because of federal funding that the investment bank received in 2008 and 2009. According to the complaint, this means that although the firm's revenues are not related to employee performance, Goldman executives are still being rewarded for corporate performance.

Goldman Sachs is expected to pay its employees about $22 billion (including bonuses) this year. Now, the plaintiffs are seeking to recover billions of dollars in compensation.

Goldman Sachs was the recipient of a $10 billion TARP loan. Pension fund officials claim the investment firm’s revenue for the year can largely be attributed to taxpayer money. In 2008, Goldman generated $29 billion in cash by issuing debts that the Federal Deposit Insurance Company had insured. It then obtained money from contractual counterparties that got their assets from taxpayers.

Meantime, Goldman Sachs says the claim is without merit. Earlier this month, the investment firm announced that its 30 most senior executives would receive their bonuses in the form of restricted stock instead of cash.

Goldman Sachs CEO Lloyd Blankfein is one of the executives named as defendants in the lawsuit.

Related Web Resources:
Read the Shareholder Derivative Complaint (PDF)

Pension fund sues Goldman over executive pay, Pensions and Investments, December 15, 2009

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Posted In: Financial Firms , Goldman Sachs

December 18, 2009

Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research

The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.

FINRA - formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.

"FINRA does not reveal names of firms that have received sweep letters," said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.

Continue reading "Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research" »

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Posted In: Citigroup , Goldman Sachs , J P Morgan - Chase , Morgan Stanley

August 31, 2009

In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification

A District Court judge has granted class certification in the securities fraud lawsuit against Lehman Brothers, Morgan Stanley, and Goldman Sachs. The plaintiffs are accusing the broker-dealers of putting forth misleading analysts reports about RSL Communications Inc. for the purposes of maintaining or obtaining profitable financial and advisory work from RSL. Per Judge Shira Sheindlin, the class is to be made up of all parties that bought RSL Common stock between April 30, 1999 and December 29, 2000.

RSL investors, who are the plaintiffs, contend that the defendants artificially inflated the market price of RSL common stock, which injured them and other class members.

In July 2005, the court had certified a class that included anyone who had bought or acquired RSL equity shares between the dates noted above after determining that the plaintiffs had made “some showing” that Rule 23 requirements had been satisfied. The broker-dealer defendants appealed.

The US Court of Appeals for the Second Circuit vacated the class certification order and remanded the action for reconsideration. It’s decision in e Initial Public Offering Securities Litigation, 471 F.3d 24 had clarified class certification standards.

Two years later, pending the outcome In re Salomon Analyst Metromedia Litigation, the court issued a stay. Following its opinion, which held that market presumption includes securities fraud allegations against research analysts, the Court lifted the stay, allowing the plaintiffs to renew their motion for class certification. The court granted the motion and noted that the defendants have been unable to “rebut the fraud on the market presumption by the preponderance of the evidence on the basis that the analyst reports” are missing certain key pieces of information. Per their securities fraud claim, plaintiffs can therefore avail of the “fraud on the market presumption to establish transaction causation.”

The court said that the plaintiffs have succeeded in proving that loss causation can be proven on a “class-wide basis."

Related Web Resources:
Court OKs Class Cert. In Fraud Suit Against Lehman, Law360, August 5, 2009

U.S. District Court for the Southern District of New York (PDF)

Continue reading "In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification" »

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Posted In: Broker Fraud , Goldman Sachs , Lehman Brothers , Morgan Stanley

May 17, 2009

Goldman Sachs Reaches $60 Million Settlement with Massachusetts Over Subprime-Mortgage Loans

Massachusetts Attorney General Martha Coakley has announced a $60 million settlement with Goldman Sachs over the alleged role the investment bank played in the subprime mortgage crisis. While Goldman did not originate the loans, it played a role in their securitization. Coakley has been conducting a nationwide probe targeting investment banks that knew certain loans were high risk but still opted to write them, as well as underwrite securities from these loans. Coakley says that state courts are in agreement that a number of these loans were destined to fail from the start.

Massachusetts will use $50 million of the settlement to help 714 Massachusetts homeowners with mortgages that are either delinquent or still performing. The money, however, won’t go toward helping homeowners whose homes have already foreclosed. The other $10 million will go to the state.

Among the terms of the settlement:

• Goldman has consented to principal write-downs of 25% to 30% for first mortgages and upward of 50% for second mortgages if owners want to sell or refinance their homes.

• A homeowner who is significantly delinquent will have to make manageable payments toward mortgages until they are able to sell or refinance.

• If a homeowner cannot sell his or her home, Goldman will help qualified borrowers to refinance and provide other solutions so that they don’t have to foreclose.

• Homeowners that have loans with Goldman entities and those that Litton Loan Servicing LP has serviced will receive immediate help.

By agreeing to the settlement, Goldman is not admitting to or denying wrongdoing. This is the first settlement, however, where an investment bank has been held to task for its role in the subprime lending crisis. Up until this point, prosecutors were only targeting the sources of the subprime loans and not the parties that put together the loans and presented them to investors.

Related Web Resources:
Massachusetts settles with Goldman Sachs, UPI, May 11, 2009

Goldman Sachs, Massachusetts reach settlement on mortgage securities, LA Times, May 12, 2009

Attorney General Martha Coakley

Continue reading "Goldman Sachs Reaches $60 Million Settlement with Massachusetts Over Subprime-Mortgage Loans" »

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Posted In: Financial Firms , Goldman Sachs , Subprime Mortgage

February 26, 2009

Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use

Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended—to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo's chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Foreclosures halt by Bank of America, Citigroup, JPMorgan, Wells Fargo, UB-News.com, February 14, 2009

Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends, Bloomberg.com, February 24, 2009

Continue reading "Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bank of America , Citigroup , Financial Firms , Goldman Sachs , Wells Fargo

November 19, 2008

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183
Deutsche Bank 1-866-926-1437
Citi 1-866-720-4802
JP Morgan 1-866-450-8470
Goldman Sachs 1-888-350-2857
Merrill Lynch 1-888-706-1381
UBS 1-800-253-1974
Morgan Stanley 1-800-566-2273
Wachovia 1-866-283-794

Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.


Related Web Resources:
State Securities Regulators Remind Auction Rate Securities Investors to Contact Firms About Buyback Offers, NASAA, November 17, 2008

Small firms caught in ARS buyback vise, November 16, 2008

Continue reading "NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Auction-Rate Securities , Bank of America , Citigroup , Deutsche Bank , Financial Firms , Goldman Sachs , J P Morgan - Chase , Merrill Lynch , Morgan Stanley , NASAA , UBS , Wachovia

October 15, 2008

Goldman Sachs Applies for New York Bank Charter

Goldman Sachs is applying for a New York bank charter. The application is one of the steps the New York-based investment bank is making in its move to become a commercial bank.

Goldman’s competitors, Bank of America, Citigroup, Morgan Stanley, and JP Morgan Chase are banks that have a national charter, which allows banks to open branches in different states without needing to apply for separate charters in each state. Having a New York charter, however, will not prevent Goldman Sachs from opening branches outside the state.

Goldman’s move to obtain a state charter is a sign that the company may not want a consumer-oriented business that operates on a national level. Rather than focusing on retail banking services, the firm will likely concentrate on managing rich people's assets.

New York Superintendent of Banks Richard H. Neiman says Goldman’s application affirms that both the state and national banking systems are “alive and well.” Meantime, New York Governor David Peterson said Goldman’s decision reflected the state’s ability to “effectively regulate” banks.

In regards to Goldman’s state bank charter application, Stockbroker Fraud Attorney William Shepherd, who is the founder of securities fraud law firm Shepherd Smith Edwards & Kantas LTD LLP had this to say:

“Isn't it interesting that Goldman Sachs decided to become a bank after the bailout plan was passed, but—apparently—does not intend to become a "real" bank. Isn't it also interesting that the bailout plan was just changed to provide capital to "banks.”

It is curious that the handful of banks selected to receive taxpayer funds includes Goldman Sachs. Finally, is it any coincidence that the mastermind of the bailout plan is "Hank" Paulson, former chief of Goldman Sachs? Oh, I failed to mention that the person chosen by Paulson to oversee the bailout plan is a former vice president of … none other than Goldman Sachs.”

Goldman Sachs Seeks New York Bank Charter, New York Times, October 13, 2008

Goldman applies for N.Y. charter, Money.CNN.com, October 14, 2008


Related Web Resource:

Goldman Sachs

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Goldman Sachs

July 21, 2008

SEC Subpoenas Over 50 Hedge Fund Advisors in Probe of Whether Stock Price Manipulation Affected Bear Stearns and Lehman Brothers Shares

The Securities and Exchange Commission has subpoenaed over 50 hedge fund advisors, including SAC Capital Advisors, Goldman Sachs Group Inc., and Citadel Investment Group, as part of its probe into whether rumors affected the shares of Bear Stearns and Lehman Brothers.

The SEC is looking for information related to options trading and short-selling involving the two investment firms. The subpoenas are part of a wider investigation about trades in bank securities and the communications between the hedge funds and others. The SEC has reassured the parties being subpoenaed that they are not necessarily direct targets of the probe.

Last week, regulators announced that they are investigating whether certain managers had spread rumors to cause share prices to drop. Investigators are also trying to figure out whether correct policies and training procedures had been put in place to detect market manipulation.

The NYSE Euronext’s regulatory arm and the Financial Industry Regulatory Authority are also working together to find out about the compliance polices of certain large securities firms related to rumors and false information. The companies are being asked whether they executed internal probes about the rumors related to the sub-prime loan business, a potential federal government bailout affecting several financial institutions, and the use of the Federal reserve discount window.

As a result of the subpoenas, broker-dealers and hedge funds are rushing to provide regulators with trading records and e-mails.

If you believe that you are a victim of securities fraud, please contact Shepherd Smith Edwards & Kantas LTD LLP for your free consultation with one of our experienced stockbroker fraud lawyers today.

Related Web Resources:

Firms hurry to comply with SEC subpoenas, Boston.com, July 17, 2008

SEC Issues Subpoenas in Banking Probe, TheStreet.com, July 16, 2008

US Securities and Exchange Commission

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bear Stearns , Financial Firms , Goldman Sachs , Lehman Brothers

March 19, 2008

Wachovia Securities Analyst Comments on Bear Stearns’ Sale and Calls Merrill Lynch the “Riskiest” Investment Bank

In a note to investors, Wachovia Securities Analyst Doug Sipkin commented on the state of the leading Wall Street securities firms in light of the worsening global credit crisis.

Sipkin blamed the “The failure of Bear Stearns” on a “management issue” rather than a “market issue.” JP Morgan Chase & Co. recently purchased Bear Stearns, the fifth largest securities company, for $236 million—that’s $2/share—a 90% market drop in just two days. The securities firm ran out of money after clients took away funds.

Sipkin, however, reassured investors that the action taken by the Federal Reserve to reduce emergency lending rates will keep the other four big securities firms in business.

The Wachovia analyst says that worries about Lehman Brothers are misguided and that the bank has sufficient liquidity to keep business running. Sipkin cited Lehman’s “superior management” and “superior business.”

Lehman and Goldman Sachs are expected to garner new business from the Bear sale. Sipkin said Goldman will likely benefit from “migrating prime brokerage balances,” while Lehman would likely pick up “material market share" in mortgages.

Morgan Stanley, said Sipkin, seems to be weathering the crisis because it has its asset management and brokerage businesses.

Sipkin pointed to Merrill Lynch as appearing to be the weakest of the top Wall Street firms—but said that it would also likely stay afloat, considering that its balance sheet had the highest leverage.

Related Web Resources:

Ahead of the Bell: Investment Banks, Chron.com/AP, March 18, 2008

US stock market drops as Bear Stearns sold for $2/share, Reuters, March 17, 2008

JP Morgan Shares to Acquire Bear Stearns, Bear Stearns


If you have been the victim of investor fraud, you are entitled to the recovery of your lost investment. Contact Shepherd Smith and Edwards today to schedule your free consultation with one of our stockbroker fraud lawyers.

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bear Stearns , Goldman Sachs , J P Morgan - Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley

February 15, 2008

Goldman Sachs, Merrill Lynch, Lehman Brothers, and Other Investment Firms Deal with Frozen Auction-Rate Securities

This week, Goldman Sachs told a number of investors that they could not withdraw money from their auction-rate securities investments. This move by Goldman came as a shock to investors—but the firm was not alone. Merrill Lynch, Lehman Brothers, and other banks have also found themselves notifying their investors that the market for these types of securities are frozen—along with their money. Just this week, there were nearly 1,000 failed auctions. The banks are now refusing to support the auctions and many investors are not sure when they’ll recover their investments.

Usually, auction-rate securities are considered safe alternatives to cash—and banks frequently recommend these bonds, considered long-term securities—to rich individuals and corporations. Banks regularly hold auctions to establish the interest rates and give holders an opportunity to sell their securities.

Auction-Rate Securities
The auction-rate market is valued at $330 billion. Tax-exempt institutions, including municipalities, student loan companies, closed-end mutual funds are among those who participate in the market.

Just because there is a failed auction does not mean the securities have defaulted. Issuers are allowed to pay interest at the “fail rate,” which is the higher rate.

Investors are not happy with the frozen state of the auction-rate securities market. Brokerage firms are not legally bound to make a market in auction securities or provide clients with a price.

One wealthy investors said he bought the securities after Goldman likened them to the equivalent of cash. Another investor, a New Jersey family, is suing Lehman Brothers because the value of its cash in auction-rate securities is decreasing. Drug manufacturer Bristol-Myers Squibb has already had to write-off the $275 million it invested in auction--rate securities because of the failed auctions.

These investments were often compared to money market funds. Many investors were told there was little or no risk in these investments, even after reports surfaced which indicated danger of owning such securities. Some financial firms reportedly encouraged individual investors to purchase these securities as they worked to reduce their own exposure and that of their large institutional clients.

Shepherd Smith Edwards & Kantas LTD LLP is a stockbroker fraud law firm that represents investors that wish to recover money they have lost because of the misconduct or negligence of an investment adviser, broker, or firm. One of our investment fraud lawyers would be happy to speak with you during a free consultation.

Related Web Resources:

New Trouble in Auction-Rate Securities, New York Times, February 15, 2008

Muni Regulators Seek Disclosure on Auction-Rate Bonds, Bloomberg.com, February 15, 2008

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Auction-Rate Securities , Goldman Sachs

February 13, 2008

Goldman Sachs Settles Enron Fraud Lawsuit with University of California for $11.5 Million

Goldman Sachs & Co. says it will settle a class action suit filed by the University of California (UC) over the purchase of Enron Corp. securities for $11.5 million. The University of California Board of Regents has approved the terms of the settlement.

Goldman allegedly marketed Enron 7% exchangeable notes via a registration statement that was false and misleading—this is a violation of the 1933 Securities Act.

UC says that it has so far received over $7.4 billion in settlements for Enron investors, including:

JP Morgan Chase: $2.2 billion
Canadian Imperial Bank of Commerce: $2.4 billion
Citigroup: $2 billion
Bank of America: $69 million
Lehman Brothers: $222.5 million
Andersen Worldwide: $33 million
Kirkland & Ellis LLP: $10.2 million
Arthur Anderson LLP: $72.5 million
Enron’s outside directors: $168 million

Barclays Bank, Merrill Lynch, Credit Suisse First Boston, Royal Bank of Scotland, Royal Bank of Canada, Toronto-Dominion Bank, and several ex-Enron officials have also been named as defendants by UC. The class involves some 1.5 million Enron stock and bond buyers whose losses due to the alleged fraud run over $40 billion.

Last month, U.S. Supreme Court refused to review the decision by an appeals court that blocks securities fraud claims made by Enron shareholders to recover damages from three large investment banks that allegedly helped Enron cover up its losses.

As an investor you have a right to get your money back if you have been the victim of investor fraud. Contact Shepherd Smith and Edwards today and ask for your free consultation with one of our experienced stockbroker fraud lawyers.

Related Web Resources:

Goldman Sachs settles with UC, Daily Bruin, February 9, 2008

Enron Securities Fraud Lawsuit, University of California

Goldman Sachs

The Rise and Fall of Enron, New York Times

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Goldman Sachs

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